Dollar General Shares Drop as Sales Growth Slows

Low-priced retailer Dollar General Corp. posted another decline in quarterly same-store sales growth Monday, sending its shares down more than 7 percent.

The company, whose third-quarter profit beat expectations, saw its stock drop 7.6 percent to $30.88 on the New York Stock Exchange as same-store sales growth slowed to 4.2 percent for the quarter.

That is down from 6.7 percent growth in the first quarter and 5.1 percent growth in the second quarter for same-store sales, or sales at stores open at least a year.

"While this was another solid operational quarter for the company, it is also the second quarter in a row where comp growth was just below expectations," RBC Capital Markets analyst Scot Ciccarelli wrote in an analyst note.

The company projected that same-store sales will rise about 5 percent in the current quarter.

"I am pleased with our Thanksgiving week sales and our outlook for the fourth quarter," Rick Dreiling, the company's chief executive officer, said in a statement.

The discount retailer said it was helped by more spending by shoppers and lower costs. The number of shoppers and average transaction amounts rose in the quarter.

The chain has benefited as lower-income consumers shifted away from pricier stores to save more money on basic goods like food, though discounters like Wal-Mart Stores Inc have stepped up their competition.

"We believe (Dollar General's) rollout of higher shelving in its stores, particularly in the more discretionary product categories, should have also helped 3Q sales," Ciccarelli wrote.

Dollar General's shares had climbed nearly 20 percent since early November as other dollar stores posted strong returns.

HIGHER EARNINGS FORECAST

The company, which sells most of its merchandise for less than $10, said profit was $128.1 million, or 37 cents a share, in the third quarter that ended Oct. 29, compared with $75.6 million, or 24 cents a share, a year earlier.

Excluding an early $8 million debt repayment, diluted earnings per share were 39 cents. Analysts on average forecast 35 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 10.1 percent to $3.22 billion for the quarter.

Sales at stores open at least a year rose 4.2 percent, said the retailer, which is majority owned by private equity firm Kohlberg Kravis Roberts & Co.

The discount retailer raised its forecast for the year to $1.78 to $1.81 in adjusted earnings per share, saying it expects full-year 2010 sales to rise 10.5 to 11 percent.

The forecast is up from a previous forecast of $1.68 to $1.74 per share. Analysts expect $1.78 per share, according to Thomson Reuters I/B/E/S.

The discount retailer also projected same-store sales growth of 5 to 5.5 percent for the year.